The Need for Ethical Yield
The advent of Bitcoin granted to the world a unique opportunity to re-envision what the world financial system could be. The existing fiat system uses debt to create money out of thin air. The only major difference between fractional reserve banking and a Ponzi scheme is that fractional reserve banking is legal with the possession of a banking charter. In this article I hope to explain how the partnership between Chainge and Koinos takes a small step toward delivering on that original vision of a new kind of financial system.
TVL: Inherently Flawed?
Cryptocurrency had an opportunity to change things, but unfortunately the same trends are beginning to emerge. Lending platforms with high yields are becoming more and more popular. While not a bad metric, Total Value Locked (TVL) is inherently flawed because value can be locked for yield, then used by the custodian and locked again in another protocol. The initial value locked can be counted multiple times as it passes through different protocols. At no point does this increase the amount of value within the system, but the effect on TVL is larger than the initial deposit. This is not different from a deposit being used to make a loan which can be deposited which can be used for a loan, ad-nauseum.
Not to hone in on a single protocol too much, let’s look at Lido. While they do not participate in recursive staking and are extremely up front with their business practices (risk of loss of investment and delays in withdrawing ETH), they are a common destination for users looking to receive yield. There is nothing wrong with utilizing capital. In fact, Lido is one of the good protocols because they are up front with the risks and their (relatively) modest reported APY of 2.81%. But other protocols utilize Lido without communicating the same risks to the users (when they are in fact still there). Novice cryptocurrency users then utilize these protocols as a sort of high yield savings account, not understanding the significant risk they take on.
At some point these practices will come back to bite users. We have an opportunity now, to work with businesses and protocols that are doing things differently, in order to not repeat the mistakes of the past. Chainge is one such business.
Earn on Koinos: Ethical & Simple
As we began exploring a partnership with Chainge we had many questions about their technology and business practices. Even more when we began discussing bringing their Earn program to Koinos. Our initial discussions assumed that they were utilizing bridged tokens to earn yield and then sharing the profits with their users. But they do not. Their business model is ethical and much simpler.
How it works
As Chainge bridges to different blockchains they integrate with the exchanges on each blockchain. They then offer easy conversion between tokens within their app and utilize the exchanges to provide the best price to their customers. Chainge takes a small fee on trades and bridges for their services. It is out of these fees and unique arbitrage opportunities that Chainge sees their profits. Chainge never uses your tokens for yield farming. All bridged tokens must be accounted for in the vault address of their home blockchain and instantly accessible at the moment they are requested. The vault is secured with a multi signature key split amongst a consortium staked and backed by the Fusion chain.
It is a simple, yet effective, business model. Historically, one of the primary services that banks provided was the evaluation and exchange of money. Certainly, they still exchange money, but for many people that is a secondary or tertiary service. But when all money were coins made from precious metals with varying degrees of quality, evaluating the worth of money and facilitating the exchange between coinage was a much larger role.
Positive Feedback Loop
This is precisely what Chainge is doing, but with cryptocurrency. We do not need custody services, but interoperability and exchange between blockchains is a necessary function of our new decentralized world. By sharing profits with individuals that bridge tokens, Chainge creates incentives for providing liquidity on different platforms, improving Chainge’s ability to provide you with the best exchange rate possible, increasing profits, and APY to token holders. This is an incredible positive feedback loop that relies entirely on providing an actual service rather than leveraging user capital on their behalf.
The partnership between Koinos and Chainge is an obvious one. Koinos was founded on the principles of freedom and property rights. With cryptocurrency and blockchain technology, we all have a vote in the future of global finance. We can choose to use scam protocols with larger than life yields, or work with companies and protocols that act ethically and value their users.
The beauty of the Earn on Koinos program is that it lets you have your cake and eat it too. You can support sustainable business practices while getting to take advantage of a very high yield!
